TIPS 75th Anniversary


The Tort & Insurance Law Jounal

Fall 1998
Volume 34 Issue 1

Table of Contents

Reason and Pollution: Correctly Construing the "Absolute" Exclusion in Context and in Accord with its Purpose and Party Expectations
Jeffrey W. Stempel

New Whines in Old Bottles: Taking Newsgathering Torts off the Food Lion Shelf
John P. Borger

The Restatement (Third) of Torts Products Liability: A Guide to its Highlights
Victor E. Schwartz

The Discovery Powers of Arbitrators and Federal Courts Under the Federal Arbitration Act
Teresa Snider

Protecting Participants in the Mediation Process: The Role of Privilege and Immunity
James L. Knoll

Emerging Theories of Liability for Utilization Review Under ERISA Health Plans
Scott D. Pomfret

Cutting the Gordian Knot: Long-Tail Claims in Insurance Insolvencies
Mary Cannon Veed

Discovery and Admissibility of Reserves
Timothy M. Sukel
Mike F. Pipkin


New Whines in Old Bottles: Taking Newsgathering Torts Off The Food Lion Shelf , 34 Tort & Ins. L.J. 61
By: John P. Borger
The article discusses a series of decisions in which trespass claims were successfully used to suppress newsgathering, the most notable of which was Food Lion, Inc. v. Capital Cites/ABC, Inc., and discusses whether Food Lion is a harbinger of new tort liability. Borger suggests that three judicial approaches are possible: (1) courts could follow Food Lion and other cases and apply trespass and other torts in a strict fashion to newsgathering activities; (2) courts could create tests, exceptions, and privileges that balance the interests of the public, journalists, and property owners; and (3) courts could completely reject the application of trespass and similar torts in the context of newsgathering, at least where the newsgathering activity creates no appreciable harm other than the broadcast or publication of the acquired information. The author is not reticent about expressing his viewpoint. "The present fad of using trespass claims against the news media deserves a shorter shelf life than pet rocks," he says.

Protecting Participants in the Mediation Process: The Role of Privilege and Immunity , 34 Tort & Ins. L.J. 115
By: James L. Knoll
By design, mediation is a cooperative process for settling disputes without adversarial adjudication. However, "[i]n this context, mediators often dispense with evidentiary or procedural protections under the theory that there are no prosecutors in mediation, only negotiators." Although traditional protections may be absent, participants in a mediation process may be protected by two procedural safeguards discussed in this article: confidentiality for the parties and availability of immunity for the mediator. Unfortunately, confidentiality privilege statutes for mediation communications vary widely among the states and are often ambiguous. Moreover, federal law does not generally recognize a mediator privilege, and almost all federal courts have declined to recognize any state-created privilege for mediators. Equally problematic are the kinds of immunity available for the mediator. The author discuses at some length the case of Wagshal v. Foster, in which the D.C. Circuit expressly held in 1994 that absolute quasi-judicial immunity applies to court-appointed mediators. Also examined are the use of quasi-judicial immunity for private mediators (notably Howard v. Drapkin, in which the California Court of Appeal agreed that absolute quasi-judicial immunity should be extended "to the category of persons who function apart from the courts in an attempt to resolve disputes") and state statutory immunity for mediators. Although Florida is apparently the only state that grants immunity to mediators equal to that granted to a judge, most states generally provide some form of qualified immunity for mediators.

Emerging Theories of Liability for Utilization Review Under ERISA Health Plans , 34 Tort & Ins. L.J. 131
By: Scott D. Pomfret
In recent years, the Employee Retirement Income Security Act (ERISA) has insulated managed care organizations (MCOs) that contract with employers to provide health care for beneficiaries of employee welfare benefit plans under the Act. Until recently, the statute's preemption clause has largely protected MCOs from liability under state tort law. This article examines two emerging theories of liability for negligence in utilization review that challenge the preemption exemption. The first is a state law tort theory that provides courts a principled way of permitting actions for negligent utilization review decision making when the decision was based on expertise based rather than on resources. Under this theory, such actions would neither "relate to" ERISA plans nor be completely preempted by ERISA's civil enforcement provision. Accordingly, plaintiffs could proceed in state court. The second theory characterizes the MCO as an ERISA fiduciary insofar as it conducts utilization review. The cause of action arises under ERISA's civil enforcement scheme, which provides for an action against fiduciaries for breach of fiduciary duty. After a brief review of the current status of the law of ERISA preemption and MCOs, the article describes the state cause of action, discusses possible defense counter arguments, and concludes that the theory is unlikely to be accepted by most courts without statutory amendment. The article next describes and evaluates the ERISA cause of action for breach of fiduciary duty under the same factual scenario. Although a fiduciary breach claim stands a much greater chance, the combination of damage limits and availability of defense strategies make it less of a threat to defense counsel and clients than it first appears. The article concludes with a discussion of how MCOs might be affected by successful litigation under these theories.

The Restatement (Third) of Torts Products Liability: A Guide to its Highlights, 34 Tort & Ins. L.J. 85
By: Victor E. Schwartz
The most important development in product liability law, according to the author, was the development and publication of the Restatement (Third) of Torts: Products Liability, which was approved unanimously by the American Law Institute in May 1997. This article describes the core of the new Restatement and suggests how it is likely to be applied by courts. First, it shows the exclusive categories of product defect manufacturing, design, and warnings and how the new rules work. Second, it focuses on key provisions of the new Restatement, including: (1) use of circumstantial evidence; (2) compliance and noncompliance with safety statutes or regulations; (3) liability of commercial product sellers for harm caused by misrepresentation or fraud; (4) liability for postsale duty to warn; (5) liability for postsale failure to recall; (6) liability of successor corporations for harm caused by predecessors; (7) the dividing line between rules of tort law that should be applicable when people have been harmed or their property has been destroyed as contrasted with recovery for purely economic loss; (8) the place of comparative fault; (9) what happens when a different label is used by a seller when a product is made by somebody else; and (10) how one may be liable for increased harm due to product defect. Also addressed are two key specialty areas: liability of suppliers of raw materials and component parts; and liability of sellers of prescription drugs and medical devices. The author is the drafter of the Model Uniform Product Liability Act and was a member of the Advisory Committee to the Restatement (Third) of Torts: Products Liability.

The Discovery Powers of Arbitrators and Federal Courts Under the Federal Arbitration Act, 34 Tort & Ins. L.J. 101
By: Teresa Snider
This article examines the power of arbitrators under the Federal Arbitration Act (FAA) to compel nonparties to produce documents and to testify in depositions and at arbitration hearings. Although the parties to an arbitration agreement have contracted to arbitrate, nonparties have not voluntarily consented to participate. The FAA balances these competing concerns by permitting nonparties to be subpoenaed, but (1) requiring that nonparty witnesses be summoned by the arbitrators rather than by the parties; (2) requiring the payment of witness fees; (3) limiting nonparty witness participation to testimony before the arbitrators; and (4) limiting the subpoena of documents to "the proper case" where the documents sought "may be deemed material as evidence." This article also analyzes the authority of courts to enforce subpoenas issued by arbitrators and to order discovery in aid of arbitration. Courts have shown a general unwillingness to interfere with the arbitration process, although a line of cases permits courts to order such discovery if exceptional circumstances exist, e.g., if a foreign vessel with crew members possessing knowledge of a dispute is about to leave port. Arbitrators have the power to exclude evidence from consideration, but they do so at the risk of having an award vacated under section 10 of the FAA.

Reason and Pollution: Correctly Construing the "Absolute" Exclusion in Context and in Accord with its Purpose and Party Expectations, 34 Tort & Ins. L.J. 1
By: Jeffrey W. Stempel
Since the mid-1980s, the standard form for commercial general liability policies has included the so-called absolute pollution exclusion, which provides that the insurance does not apply to bodily injury or property damage "arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants." The broad language used in the current pollution exclusion has, like its predecessor, spurred heated litigation as to the meaning and application of the exclusion. Attorneys for policyholders have supported decisions refusing to bar coverage for workplace or home accidents as "excluded pollution." Not surprisingly, attorneys for insurers have taken the opposite view by arguing vigorously that the exclusion is clear and was intended to bar coverage for any claim in which a "pollutant" contributes to the injury. Although insurers have succeeded in persuading some courts that the pollution exclusion denies coverage to commercial policyholders for such hazards as carbon monoxide claims, product liability, construction, and moving mishaps, and similar claims arising from ordinary business activities not normally viewed as "pollution," these victories are undeserved, contends the author. Counsel for insurance companies, he adds, have strayed from the sounder history of contract law in general as well as the particular history of the pollution exclusion. Instead of reasonably reading the insurance policy in whole and in context, they have focused myopically and hyperliterally on the text of the exclusion to attempt to deny the sorts of claims that had traditionally been covered under the basic CGL policy.

Discovery and Admissibility of Reserves, 34 Tort & Ins. L.J. 191
By: Timothy M. Sukel and Mike F. Pipkin
This article presents a comprehensive evaluation of case authority that has addressed the discovery and, to a lesser extent, admissibility of reserve information. During the past two decades, determination of reserves has become a much larger area of dispute between the insured and insurer during discovery and trial preparation. Insureds assert that the amount of reserves established by an insurer is relevant because it is evidence of the insurer's interpretation of the scope of coverage provided by the insurance policy or bond. After a brief discussion of how the courts have defined reserves, the article considers how insurers determine reserves, and how the strictures of reserve determination affect their discovery. The article next examines how the courts have allowed or disallowed discovery of reserves based upon the type of cases before them, and concludes with an analysis of the cases reviewing the admissibility of reserves as evidence.

Cutting the Gordian Knot: Long-Tail Claims in Insurance Insolvencies , 34 Tort & Ins. L.J. 167
By: Mary Cannon Veed
The collapse of an insurer can be disastrous for its policyholders and others that rely on its promises. The predicament of the liquidator confronted by long-tail claims and slowly maturing reinsurance is, according to the author, recent and largely self-inflicted. Although statutes can be amended to clarify and improve the remedies available, law currently on the books clearly demands that the economic value of insurance policies be recognized in liquidation. Claims payment schemes that depend on such a recognition should not impair the collectibility of the insolvent company's reinsurance. The liquidator of any insurer seriously affected by long-tail claims has an affirmative duty to initiate or accept determination of these unliquidated claims by actuarial or other methods offering a reasonable degree of certainty and accuracy. After a brief discussion of credit valuation strategies, the author discusses with approval a recent decision by the New Jersey Supreme Court (In re Liquidation of Integrity Ins. Co. (Credit Lyonnais), 657 A.2d 902 (N.J. Super. 1995)). In Credit Lyonnais, the court held that, if it is the economic value of the policy that the policyholder has lost, then a dividend based on that value is perfectly fair.

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